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TMI Blog1992 (4) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... hly rental of Rs. 3,000. The question in this case is whether this rental income is assessable in the hands of the assessee as part of its business income and if so it is exempt under section 80P(2)(a)(i). Section 80P(2)(a)(i) which is relevant for our purposes reads as follows :-- Section (80)P - (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sum referred to in sub-section (1) shall be the following, namely :-- (a) In the case of a co-operative society engaged in-- (i) carrying on the business of banking or providing credit facilities to its members, or the whole of the amount of profits and gains of business attributable to any one or more of such activities. Therefore from the above reading of the section it would be clear that the amount claimed as exempt should form part of the profits and gains of the business and that business should be attributable to one or more of the activities carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Range, Hyderabad. It was contended that merely because a part of the building in which the activity of the assessee is carried on is let out it would to mean that letting out the building is not incidental to the carrying on of the main business of the assessee. The earlier order of this Tribunal in Vizag Co-operative Bank Ltd. v. ITO [1986] 26 TTJ (Hyd.) 387 was relied upon and in the light of the order, the rent realised was contended to be exempt from tax under section 80P(2)(a)(i). Copy of this earlier order of the Tribunal dated 25-6-1986 was filed before me. In the case before the Tribunal, the assessee was carrying on the business of banking. It had occupied 2/3rd portion of the building and 1/3rd portion of it was only let out which was assessed under the head 'income from house property'. No doubt the exemption was claimed under section 80P. However, the exemption was denied to the assessee in that case on a different ground than the ground on which the exemption is denied in this case. The Tribunal stating the facts, found that the exemption was denied by the ITO on the ground that the gross total income of the assessee exceeded Rs. 20,000 and hence the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee either under the Co-operative Societies Act or under any of the bye-laws by which the assessee society is governed. It is argued that the very fact that no bye-law was produced in order to show that the assessee can very well engage in putting up of a building and rent it out would show that had the bye-laws been produced they would not support the case of the assessee. Non-production of bye-laws by the assessee society is capable of an adverse inference being drawn against the assessee society. Providing credit facilities to its members and the realisation of the loans from the members is the permitted activity of the assessee. The assessee is entitled to maintain its office. Half of the building is thus occupied by it and to the extent the building is occupied by its office, it is exempt since it is inseparable part of the activity carried on by the assessee. The whole of the ground floor of the building is felt as extra building space is available to it which is not needed for their business purposes and hence it was let out to the State Bank of Hyderabad on a rental of Rs. 3,000 per month. It was let out long back right from 1970. The question of leasing it out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be considered to be business income and that the activity of letting out is held to be permitted activity under section 6(1)(k) of the Banking Companies Act, 1949. In this case before us, the assessee is not carrying on banking activity. Its business is only to provide credit facilities to its members and to realise the credits thus given from the members. There is no scope at all for the assessee being governed by the Banking Companies Act, 1949. Thus, the protection of section 6(1)(k) of the Banking Companies Act is not available to the assessee. Purchasing a building or owning a building cannot be considered to be part of business activity of the assessee-society though the Legislature in its wisdom had taken a different view with regard to banks. When the whole building was considered to be a business asset, letting out a portion of that building asset should necessarily result in business income. However, in this case, the assessee is governed by the Co-operative Societies Act and the bye-laws made thereunder. The counsel for the assessee was unable to lay her hand on any provision of either the Co-operative Societies Act or was able to produce the bye-laws under any of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of rent from the building is only an incident of ownership and no corporate activity of the society is required for that purpose. My view of the matter finds support in the judgment of the Andhra Pradesh High Court in Phabimol Sons' case. In that case, it is clearly held that letting out of a building and realising rents from them did not amount to carrying on of a business and it was only incidental to ownership. The question there was, whether there can be valid partnership which carries on the business of letting out buildings on rent and whether such firm is entitled to registration. Their Lordships of the Andhra Pradesh High Court categorically held that no business activity is involved and such a firm cannot be granted registration. In this connection I feel that the Andhra Pradesh High Court's decision in Andhra Pradesh Co-operative Central Land Mortgage Bank Ltd.'s case is directly applicable to the facts of the case. There the question was whether interest on securities can be considered to be the business income and if it is not income derived from business whether exemption under section 81(1)(a)(v) of the Income-tax Act, 1961 is available. Section 81(1)(a) which ..... 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